The Commercial Invoice and INCOTERMS. Swanchester Group

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1 1 The Commercial Invoice and INCOTERMS Swanchester Group

2 Introduction Documents in International Trade 2 The Commercial Invoice Types of Invoices INCOTERMS

3 Documents in International Trade The Commercial Invoice The importance of the documents in the International Trade. 3 Proof of contract. Title to the goods. Information Commercial Invoice. Customs. Proof of compliance.

4 Information Documents The Commercial Invoice 4 Proforma Invoice (Factura Proforma) Commercial Invoice (Factura Comercial) Packing list/weight List (Lista de embalaje/ Lista de peso) 4

5 The Commercial Invoice 5 5

6 The Commercial Invoice and The Law In Spain: Real Decreto 1496/2003, de 28 de noviembre, por el que se aprueba el Reglamento por el que se regulan las obligaciones de facturación y se modifica el Reglamento del Impuesto sobre el Valor Añadido. 6 In US: 19 CFR Contents of invoices and general requirements.

7 FUNCTIONS: The Commercial Invoice 7 The seller's demand for payment A source of information for shipping documents The source document for destination customs clearance Information about the terms and conditions of a sales transaction The basis on which a claim must be made

8 The Commercial Invoice USED: 8 Customs Freight forwarders International bankers Transport Insurance companies

9 What should appear in a commercial invoice? The document title should clearly state "Commercial Invoice 9 The name of the exporter (referred to as the shipper) and their contact details The name of the importer (referred to as the consignee) and their contact details If the person or firm buying the goods (the importer) is not the same as the person or firm to whom the goods are being sent, then you should include both their contact details and addresses in the commercial invoice The name of the person and company to notify once shipment has taken place and their contact details and physical address A commercial invoice reference number

10 10 A purchase order number or similar reference The date of issue of the commercial invoice A complete, detailed and clear description of the goods in question, incorporating the appropriate HS codes and brandmarks if applicable The quantity of goods in question, including the number of units/items The packing details unless provided in a separate packing list, including their external dimensions, cubic capacity, weight, numbers and contents of each package shipped, and kinds of packaging involved- if a separate packing list is used, reference should be made in the commercial invoice to the packing list

11 11 The grand total price of the goods for the whole consignment Where applicable, the unit prices should be indicated The currency in which the goods will be sold The type and amount of any discount given, where applicable The likely delivery schedule and delivery terms The payment methods (for example cash in advance, L/C, etc.)

12 12 The payment terms (for example 30 days on sight) The Incoterm to be used (Incoterms FAS, CIF, CFR, DDP, etc). Who is responsible for the banking fees and other related costs (insurance and freight costs are covered by the Incoterm in question) What the freight and insurance charges are The exporter's banking details A declaration of the country of origin of the goods

13 13 The expected country of final destination Any freight details Any additional exporter-provided services that should be added to the invoice to come to the grand total. Any transhipment requirements such as the port of loading and discharge Indicate the total weight of your shipment The validity of the commercial invoice Any other information relevant to the order Make sure the commercial invoice is signed

14 Parts of a Commercial Invoice 14

15 The Commercial Invoice 15 English Legalese << We hereby certify that this is a true and correct invoice both as regards the prices and descriptions contained herein. We confirm that no other invoice has been or will be issued and that any particulars are in accordance with our books. Subject to all the terms and conditions printed hereof and of any agreement or licence between the said parties. This contract shall be governed by Incoterms 1990 and English Law apply>>. No standard format Original Accuracy

16 16 16

17 17

18 1. Proforma Invoices TYPES OF INVOICES Commercial Invoices 3. Customs Invoices 4. Consular Invoices

19 Types of invoices Proforma invoices: Estimated invoice sent by a seller to a buyer in advance of a shipment or delivery of goods. Kind and quantity of goods, value, weight, transportation charges Offer put to the importer by the exporter. It serves as a means of negotiating the actual contract.

20 20

21 21 Once the importer indicates that he is happy with the terms of the contract as outlined in the (final) proforma invoice, the exporter will then be requested to provide the importer with a commercial invoice. It should reflect the final agreed proforma invoice exactly - any deviances will result in problems executing the transaction and/or receiving payment.

22 Types of invoices Commercial/Export invoices: A customs declaration form used in international trade that describes the parties involved in the shipping transaction, the goods being transported, and the value of the goods. In exporting, the commercial invoice is considered a very important document as it serves as the starting document that supports an export transaction.

23 Based on the terms specified in this commercial invoice, the importer will instruct his/her bank (issuing bank) to issue a letter of credit. This letter of credit will also need to reflect the terms specified in the commercial invoice exactly, while all subsequent documentation must reflect the terms of the L/C. 23 Central role in an export transaction

24 Types of invoices Customs invoices: Extended form of commercial invoice required by customs in which the exporter states the description, quantity and selling price, freight, insurance, and packing costs, terms of delivery and payment, weight and/or volume of the goods for the purpose of determining customs import value at the port of destination. Some countries: commercial invoice to be completed on their own specified forms ("Customs' invoices ) and may be provided in addition to the standard commercial invoices referred to above.

25 Types of invoices Consular invoices: In international commerce, an invoice which is signed and sealed by a consul of the importing country who is posted in the exporting country. It builds trust between the buyer and seller and helps reduce the possibility that the seller (exporter) will overcharge the buyer (importer). The consular invoice must be prepared in the language of the destination country and can be obtained from the country's consulate.

26 INCOTERMS 26 "There is no organization better placed than ICC the organization that created and maintains the Incoterms rules to help traders learn how to apply the rules correctly to their global or domestic sales transactions." (Emily O'Connor, ICC Senior Policy Manager and Secretariat for the Drafting Group)

27 INCOTERMS 27 International Commerce Terms. A series of international sales terms, first published by the International Chamber of Commerce (ICC) in Widely used in international commercial transactions.

28 INCOTERMS They help traders avoid costly misunderstandings by claryfing the tasks, costs and risks involved in the delivery of goods from seller to buyer. 28 Nowadays, we have Incoterms The new Incoterms 2010 were launched in September 2010 and will come into effect on 1 January 2011.

29 INCOTERMS DO 29 Fix liability of buyer and seller. Fix division of costs Assume risks (loss or damage) Are adapted to contemporary commercial practices.

30 INCOTERMS DO NOT Dictate the contract of carriage (title or ownership/bill of Lading) Include all the duties of the buyer and seller. Deal with breach of contracts. Deal with exemptions from liability in case of impediments. Speak about payment terms. 30

31 Incoterms 31

32 Incoterms International Commercial terms known as incoterms Do not cover ownership or transfer of the title of goods The importance of knowing which Incoterm is used at the start of negotiation/quotation of a sale 32 International Chamber of Commerce

33 Sales transactions Incoterms Exporters should determine which Incoterm works best for the company Inexperienced exporters may use Incoterm Exworks A sale based on Incoterm CIF : Exporter has to arrange and pay for pre-carriage, shipping, insurance 33

34 Incoterms Incoterms on a commercial invoice or quotation to buyer: Term should be followed by city or port of load/discharge e.g. ExWFactory,Richmand,Va CIF Rotterdam Communication is crucial Under EXworks the shipper should notify the importer when the goods are ready 34

35 Incoterms The most burdensome Incoterm for exporter is Delivered Duty Paid (DDP) Shipping DDP assumed by the most experienced exporters Many details considered Many questions asked 35

36 TERMS 36 Group E Departure Group F- Main carriage paid by buyer Group C Main carriage paid by seller Group D - Arrival

37 GROUP F (Main carriage paid by buyer) FCA- Free Carrier FAS- Free alongside Ship FOB- Free on Board 37

38 FCA Free carrier 38 (Named places) Seller fulfills its obligations once it hands over the goods into the custody of the carrier named by the buyer FCA can be used for all means of transport Buyer s obligation to receive seller s arriving vehicle unloaded

39 39

40 FAS Free alongside ship 40 (Named loading port) Seller fulfills its delivery obligations once it has placed the goods alongside ship in dock or landing area Risks pass to buyer once delivered alongside ship by seller Used for sea or inland waterway transportation

41 41

42 FOB Free on board 42 (Named loading port) Seller fulfills its delivery obligation once it has placed the goods on board the vessel Risks pass to buyer once delivered on board the ship by seller Used for sea or inland waterway transportation

43 43

44 INCOTERMS: GROUP C MAIN CARRIAGE PAID 44 Two critical division points: division of costs and division of risk. - Costs SELLER destination point - Risk BUYER point of shipment

45 45 ANY MODE OF TRANSPORT INCLUDING MULTIMODAL SEA AND INLAND WATERWAY TRANSPORT CPT Carriage Paid To CFR Cost And Freight CIP Carriage And Insurance Paid To CIF Cost, Insurance and Freight

46 46 CFR "Cost and Freight" (...named port of destination) SELLER costs and freight port of destination. Risk: transferred to the BUYER once the goods have crossed the ship's rail. Insurance: NOT included.

47 47

48 CIF "Cost, Insurance, and Freight" 48 (...named port of destination) SELLER costs and freight port of destination. Risk: transferred to the BUYER once the goods have crossed the ship's rail. SELLER insurance premium (on minimum cover).

49 49

50 50 CPT "Carriage Paid To" (...named place of destination) SELLER cost of carriage named destination. Risk of loss or damage to the goods transfers from the SELLER to the BUYER when the goods have been delivered to the custody of the final carrier. CARRIER: person who, in a contract of carriage, undertakes to perform or to procure the performance of transport (by rail, road, sea, etc.)

51 51

52 CIP "Carriage And Insurance Paid To" 52 (...named place of destination) SELLER cost of carriage named destination. Risks and any additional costs transfers from the SELLER to the BUYER when the goods have been delivered. SELLER insurance premium (on minimum cover).

53 53

54 String sales INCOTERMS Only the first SELLER is responsible for shipping the goods. New Rules: CIF and CFR now refer to an obligation to contract or procure a contract for the carriage of the goods Terminal handling charges - Incoterms 2000 Rules (e.g. CIF/CFR): BUYER potentially faced paying for the same service twice. - Incoterms 2010: allocating such costs under the relevant Rules.

55 55

56 GROUP E (departure) 56

57 57 EXW Ex works EXW is used for any mode of transportation. The seller has the goods ready for collection at his premises. The buyer does the rest. The seller will not contract any transportation. ( named place) The greatest responsibility on the buyer and minimum obligations on the seller.

58 58

59 GROUP D (arrival) The seller bears all the costs and risks in shipping the goods to the country destination. It is formed by 5 types: - DAF* - DES* - DEQ* - DDU* - DDP 59

60 60 DAF Delivery at Frontier (...named point) This term is used for any mode of transportation but must be delivered by land. The seller pays for transportation to the named place of delivery at he frontier. The buyer arranges for customs clearance and pays for transportation from the frontier to his factory. The passing of risk occurs at the frontier.

61 61

62 DES Delivered Ex Ship 62 ( named port of destination) This term is used for ocean shipments only. The seller has to bear all the costs and risks involved in bringing the goods to the named port of destination before discharging. The passing of the risks when the goods made available for unloading to the buyer.

63 63

64 DEQ Delivery Ex Quay 64 This term is used for ocean shipments only. ( named port of destination) The seller has to bear all the costs and risks involved in bringing the goods to the named port of destination and discharging the goods on the quay. The passing of risk occurs when the goods have been unloaded at the port of destination.

65 65

66 DDU Delivery Duty Unpaid 66 ( named destination place) This term is used for any mode of transportation. The seller delivers the goods to the buyer to the named destination place not unloaded and cleared The buyer bears the costs and risks for the unloading, duty and any subsequent delivery beyond the place of destination.

67 67

68 DDP Delivered Duty Paid 68 ( named destination place) This term is used for any mode of transportation. The seller pays for all transportation costs and bears all risk until the goods have been delivered and pays the duty. DDP represents the maximum obligation for the seller.

69 69

70 INCOTERMS 2010 The DAF, DES, DEQ, and DDU designations have been eliminated. They have been added: -DAT (Delivered at Terminal) it replaces DEQ. 70 -DAP (Delivered at Place) it replaces DAF, DES, DEQ and DDU. They attempt to better take into account the role cargo security and electronic data interchange now play in international trade.

71 DAT DAT (Delivered at Terminal) replaces DEQ (Delivered ex Quay). DAT may be used irrespective of the mode of transport selected and may also be used where more than one mode of transport is employed. Delivered at Terminal means that the seller delivers when the goods, having been unloaded from the arriving means of transport, are placed at the buyer s disposal at a named terminal at the named port or place of destination. DAT requires the seller to clear the goods for export where applicable but the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities. It was considered that DAT would prove more useful than DEQ in the case of containers that might be unloaded and then loaded into a container stack at the terminal, awaiting shipment. There was previously no term clearly dealing with containers that were not at the buyer s premises.. 71

72 DAP 72 DAP (Delivered at Place) replaces DAF, DES, DEQ and DDU. The arriving vehicle under DAP could be a ship and the named place of destination could be a port. Consequently, the ICC considered that DAP could safely be used instead of DES and that it would make the Rules more user-friendly if they abolished terms that were fundamentally the same. Again, a seller under DAP bears all the costs (other than any import clearance costs) and risks involved in bringing the goods to the named destination

73 Bibliography: 73 Socorro Trujillo, K. (2008): Aspectos textuales y terminológicos de documentos mercantiles del comercio internacional: Herramientas aplicables a la formación de traductores. Servicio de publicaciones y difusión científica. Universidad de las Palmas de Gran Canaria. Páginas web: COMERCIAL)

74 Kingdom/Investing-Trade-Regulations-and-Standards-in-the-UK.html pag-/Diccionario+de+comercio+exterior/factura+comercial.htm ml 74

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